Business Models 1

Business Models 1
A set of planned activities designed to result in a profit
In the market place
Key Factors
value proposition
why buy
revenue model
earn money
market opportunity
what market space
market strategy
promotion and attraction
competitive environment other competitors
competitive advantage
what advantage
organisational structure necessary structure
management team
what experience etc
Value Proposition
The heart of the business model:
defines how the product/service fulfils needs;
defines why the customer will choose you;
the offering is personalised and customised;
reduced costs ;
facilitation of transactions - payments etc.;
reliable and quick delivery services.
e.g. Amazon offers:
convenience - 24 hours a day
comfort of own home (no trip to shops)
book in stock ( a shop can hold only so many )
good price and quick delivery
Revenue or Financial Model
How to : earn revenue
 generate profit
 produce a superior return on invested capital above all
greater than alternative investments
e.g. a retailer buys and sells and makes an operating profit he
also needs to make enough profit to cover the capital (loan
or savings) needed to start up and keep the business going
and growing.
Ways of getting income
transaction fee
affilliate or referral
Sources of income
A firm provides a forum for advertisements and receives a fee
from advertisers.
Initially very popular - then decline – now rising. Still a primary source of
A web site charges a fee for access to content or services.
Usually high value premium offering, not readily available elsewhere, e.g.
consumer reports on line, newsletters, newspaper crosswords etc.
Sources of income
Transaction fees
a fee for enabling or executing a transaction
e.g. eBay created an online auction marketplace and charges a fee from the seller
when the sale is made; e.g. E-Trade - a fee for a stock transaction
selling goods , information , or services, e.g. Amazon – books, music, videos,
antiques etc; e.g. Doubleclick - information; Salesforce – sales management
the site steers business to an affiliate and receives a referral fee
or percentage of the revenue from a sale, e.g. Plane tickets, electronics via
Kelkoo, Google Adwords
Market Opportunity
A company’s intended market space and the potential financial
opportunities available, usually a series of smaller market niches
but, realistically, only some of the niches.
Example: a software training company that writes software learning
systems and sells them to companies.
The market size of this niche is estimated at $100 billion.
A small company cannot compete with large brand names
selling to big companies, so aims at thousands of small
businesses – a niche worth some $10 billion.
Market Strategy
The plan which details how one intends to enter a new
market and attract new customers, basically promoting
one’s products and services
Examples:Faster/better search engine - Google
Yahoo invested heavily in advertising to tell the public
about its site;
AOL used sampling - sent out millions of CDs with a free
trial offer in magazines and newspapers.
Use of TV to advertise (
Competitive Environment
Refers to other companies selling similar products or
services in the same market space.
Several questions:how many competitors?
how large are their operations?
what market share has each?
how profitable are they?
how do they price their products?
is the market saturated or untapped or what status?
Competitive Advantage
First mover advantage
 first into market place with a serviceable product or service;
 develop a loyal following, with something difficult to imitate
 most first movers lack resources.
Amazon is an excellent example of a first mover & an exception in not
lacking resources.
In a perfect market all firms have equal access to all the factors of
production including information and knowledge. Real markets are
imperfect, competition is usually asymmetrical.
Most competitive advantages are short term; some, however, go on for
a long time e.g.Coca Cola.
Competitive Advantage
Produce a superior product or service or bring it to market
at a lower price
Possible factors:
differential access to the factors of production
favourable terms from suppliers, shippers, labour etc
more experienced staff - better managers
a patent that others cannot imitate
access to investment capital
brand name or popular image.
Functional areas (classical)
 production
 transport
 marketing
 finance
 human resources
 customer support
 perhaps the most important element required to make the
business model work;
 a strong team is necessary for credibility;
 market – specific knowledge is required but –
 generalists to start;
 ability to change the model or redefine it;
 major weakness in initial e-commerce was lack of
experienced management.
Business Models
Comments  many different kinds – many overlaps
 broad definitions have been chosen, categorised by general type of ecommerce
 companies will normally operate one kind of business model (at least to
start ) but some use multiples, e.g., eBay is C2C and B2C